The phrase procure-to-pay is used a bit differently by different people. For some, it only begins after a good or service is purchased, ignoring the first term. For some, it ceases at the point where an invoice has been processed and approved for payment, ignoring the execution of the second item. Thankfully, this is just a shorthand that doesn’t have much value outside of discussing the different pieces that work together to make up the whole. Here’s a quick rundown of what we’re really talking about:
- Procurement / Purchasing
- Pricing and Terms Negotiation
- Goods Receipt
- Invoice Receipt and Approval
- Electronic Invoicing
- Imaging (Document Capture)
- Optical Character Recognition (Data Capture)
- ACH / EFT
Key Performance Indicators
Invoice Processing Speed
The elapsed time from receipt in your mail room through approval for payment. This may be quite different for electronic versus paper-based invoices. It is almost certainly different for those invoices that require exception management along the way, due to incorrect pricing, tax, freight, etc. or discrepancies between what was billed and what was actually received. It is important to understand this measure because it impacts staffing requirements and your ability to capture early payment discounts (or avoid late payment penalties).
Invoice Processing Cost
While it may sound easy, this one is a devil to calculate — and no two firms seem to do it the same way. The top-down approach take your entire departmental cost and divides by the number of invoices processed. The bottom-up approach adds together all of the components that are required to process invoices (staff labor dedicated to invoice management, software and service costs, transaction fees for documents and payments, etc.) and divides that sum by the number of invoices processed. Top-down is easier to calculate, and as such, easier to compare across companies. Bottom-up take a lot more legwork, but gives a much more accurate picture — and putting it together helps you better understand all of the different parts that affect cost, giving you a better shot at managing them moving forward.
Discount Capture Rate
This is the percentage of available early payment discounts that you’re able to actually capture. There are two main factors that impact this measure: how many purchases you have potential discounts on, and whether you’re able to process invoices quickly enough to complete the cycle before the early payment period runs out.